 Okay that said let's dive into it. An accounting method is a set of rules used to determine when and how income and expenses are reported. So your accounting method includes not only the overall method of accounting you use but also the accounting treatment you use for any material item. So you choose an accounting method for your business when you file your first income tax return that includes a schedule C. So when you first start out you want to make sure that you get your accounting method correct when you start out because again the IRS gives you some leeway to choose an accounting method but once chosen then they're going to want you to stick to that accounting method you may be able to change but it might be a little bit burdensome to to make the change you might have to request an accounting method change and so on. So after that if you want to change your accounting method you must generally get IRS approval if you want to do that you can see the change in accounting method later. So kinds of methods generally you can use any of the following accounting methods you got the cash method you've got an accrual method and then you got special methods of accounting for certain items of income and expenses in essence a combo method in essence a hybrid method in other words you might have for example your expenses being paid on a cash based method your revenue on an accrual based method because of the industry you're in for example. So you have combination method using elements of two or more of the methods so that's a combination method the special methods could you could have special kind of accounting treatment for certain things so for example if your normally revenue is recognized on an accrual method when you earn the revenue but there's sometimes there's deviations from that when you're in a kind of situation where you do long-term contracts like in construction of like a building or something like that meaning you're not going to complete the actual building for multiple years possibly does that mean you shouldn't record any of the income until you actually complete it and then you've got like revenue recognition principles completed contract or percentage of completion kind of methodology that can come into play but that's usually for you know larger companies oftentimes that have those long time long-term kind of contracts that might be industry specific many small businesses might be in a situation where they're using a combo of accrual versus cashed methods because for example they might have to use an accrual method depending on the industry if they have to do the work before they invoice a client so you must use the same accounting method to figure your taxable income and to keep your books so in other words the iris is going to be skeptical if you're saying i'm going to use an accrual method for my books but a cash method for my taxes why would you do that it looks like you're just doing that in order to cheat on your taxes somehow because it would be easier to use a cash method for both your bookkeeping or your accrual method for both sides right so the iris is going to say hey look whatever method you're using to keep your books that should be primarily the same method you're going to be using to do your taxes now how would the iris know what methods you do your books with well they would have to audit you in order to basically know that but in principle if you're doing one accounting method on your books and then you're totally changing the accounting method from accrual to cash or something for taxes it looks like you're doing that to try to avoid taxes some way and that's why the iris wants you to use the same method that you would use when you do your normal bookkeeping for taxes so also you must use an accounting method that clearly shows your income clearly the iris wants an accurate accounting method so if you have accounting methods that are not accurately showing income then that's not a good accounting method business and personal items you can account for business and personal items under different accounting methods for example you can figure your business income under an accrual method even if you use a cash method to figure your personal items in other words most of your deductions like on a form 1040 for example on on the schedule a and above the line deductions and whatnot are on a cash based type of system that doesn't mean that your business income on a schedule c can't be on an accrual method generally when we're talking about the business income that's kind of separate than the rest of the tax return which may still be on kind of like a a cash based system oftentimes so two or more businesses so if you have two or more separate and distinct businesses you can use a different accounting method for each if the method clearly reflects the income of each business so now you've got two schedule c's because you're you're doing two different businesses possibly a married couple for example they have two two businesses or a sole proprietorship that has two distinct businesses one it might make sense to have an accrual method and the other it might make sense to have a cash basis method you can use two different methods because they're two different businesses we should be keeping the accounting separate for those two businesses so they are separate and distinct only if you maintain complete and separate books and records for each business